Non-Foreign Affidavits / FIRPTA When the Seller Is a Foreign National

You may be asked to sign a non-foreign affidavit, also called a FIRPTA, if you are selling property.  It is one of the many documents that will be a part of your set of seller documents.  People can get a little confused or upset when they see language on the affidavit concerning a 10% or 15% IRS withholding.  The FIRPTA does not apply to everyone and is a common form to help the closing attorney confirm whether there will be an IRS withholding at closing. 

It’s simple enough to follow the guidelines but I find it’s a bit better to understand the “why” of certain processes. 

Capital gains, if due on the sale of property, are handled through the tax return process and deducted from regular income tax. 

A foreign person is not taxed on most capital gains, including real estate, so the IRS is generally unaware and cannot get the capital gain tax they would be due on a property transaction through the normal tax return process.  FRIPTA works at closing by taking the capital gain off the net proceeds of the foreign person at closing.  The capital gain tax is collected by the settlement agent and paid to the IRS along with a Form 8288 and 8288-A. 

The percentage of withholding depends on the purchase price and whether the buyer will be using the property as a primary residence or not.  Net proceeds from property sold in the $300,000 to $1,000,000 range, which is intended to be a primary residence for 1 out of 2 years after closing, is withheld at 10%.  Net proceeds from property sold exceeding $1,000,000 or not intended to be used as a primary residence is withheld at 15%.

Real Estate